Corporate Governance

The Myth of an Independent System for Nominating Directors (and Another Reason Why Shareholder Access Is Necessary) (Part 4)

By J Robert Brown Jr.

HP took issue with the ISS Report. 

A letter from the Chairman of the Board asserted that "[a]ll of our Board nominees have been subject to the same robust vetting process that has been used to identify and evaluate previous director candidates—consistent with the Nominating and Governance Committee charter, our bylaws and our corporate governance guidelines."  The use of the ad hoc committee was attributed to the need for a "'fresh' perspectives and a broader industry experience". 

Moreover, the Letter described the process as "perfectly legal" and "constituted perfectly sound corporate governance".  In effect, the Letter took the position that there were adequate safeguards in the selection process to ensure that the selections were not excessively influenced by the CEO. 

The ad hoc committee, for example, had "no power to select, appoint or nominate any director" but only augmented the pool of candiates.  The ad hoc committee, in addition to the CEO, had  "three other clearly independent, serious-minded, very capable and astute directors".  The nominees had to be examined and "pass muster" with the nominating committee, which did not include the CEO. 

But most interesting was the Company's assertion that other companies do it as well. 

• We respectfully submit that most, if not all, other companies, large and small, public and private, involve the CEO in the identification and vetting process for new director candidates.  Despite what ISS purports to believe, that is reality and constitutes good governance.  In fact, given the unique circumstances facing HP, exclusion of the new CEO from this process would have detracted from our efforts to transform the Board into the leading industry-savvy Board that it has become.

In fact, HP is likely right.  Most if not all companies allow the CEO to influence the director selection process.  As we will note in the final post, this is the strongest argument yet for shareholder access. 

Full post as published by The Race to the Bottom on March 16, 2011 (boomark / email).